McKinsey warns banks face $170 billion profit hit from rise of AI

Artificial intelligence could erase up to $170 billion in global banking profits over the next decade, according to McKinsey & Company’s Global Banking Annual Review 2025.

Banks face $170 billion profit hit from AI

The consultancy warns that while AI offers enormous potential for efficiency gains, it could also destabilise long-standing profit pools as consumers use technology to optimise their own finances.

McKinsey describes AI as a “double-edged sword” for banks.

On one side, early adopters stand to benefit from operating cost reductions of up to 20 per cent and a rise in returns on tangible equity of as much as four percentage points.

On the other, banks that lag in deploying AI risk being disintermediated by consumers’ growing use of agentic and generative AI tools — capable of analysing personal data and making financial recommendations or transactions autonomously.

AI-Driven Disruption of Traditional Profit Pools

The report highlights that the greatest threat may not come from technology companies or fintechs, but from customers themselves.

As consumers turn to autonomous AI agents to manage deposits, investments, and spending, the inertia that has long underpinned the retail banking model could disappear.

“Imagine you have an AI agent that says: ‘Hey, you could save $2,000 a year by moving your money,’” said McKinsey senior partner Pradip Patiath, quoted by Bloomberg.

“It automates a lot of the inertia that is in the system today.”

McKinsey estimates that $23 trillion of the $70 trillion held in global consumer banking sits in zero-interest accounts.

If AI enables customers to move this idle money into higher-yield products elsewhere, banks could see a 9 per cent decline in profits, pushing many below their cost of capital.

From Scale to Precision Banking

Despite record profits — with global banking income reaching $1.2 trillion in 2024 — the sector faces slowing growth and fading tailwinds such as elevated interest rates.

McKinsey argues that “precision, not heft” will define the next chapter for the industry.

Banks that succeed will be those that focus on the most impactful technology investments, deliver hyper-personalised services through data and AI, and deploy capital with surgical discipline.

The report’s “precision toolbox” outlines four imperatives: targeted technology investment, hyper-personalisation, micro-level capital efficiency, and strategic, capability-led mergers. Crucially, it asserts that even smaller banks can outperform larger rivals if they embed focus and agility into their strategy.

The AI Imperative

McKinsey concludes that the convergence of AI is rewriting the rules of customer engagement. More than half of consumers already use generative AI tools — and nearly all would switch providers if their bank fails to keep pace.

For incumbents, the message is stark: those that integrate AI-driven insights with human trust will thrive; those that do not may see their profits, and their relevance, eroded.